Can The IRS Deny My Submission Underneath The Streamlined Submitting Compliance Procedures? – Earnings Tax


Federal tax law imposes various reporting requirements on U.S.
taxpayers (citizens and residents) who have foreign transactions,
foreign financial accounts, and/or interests in foreign entities.
Taxpayers who fail to timely and properly file these information
returns run the real risk of significant civil penalties for the
non-reporting. However, for almost a decade, the IRS has offered
certain qualifying taxpayers limited amnesty to regain
compliance—at reduced civil penalty rates—through the
Streamlined Filing Compliance Procedures

But not all taxpayers qualify for the SFCP. For
example, taxpayers who “willfully” failed to file foreign
information returns or pay U.S. tax on foreign income are
ineligible. Moreover, taxpayers who are otherwise eligible may be
deemed ineligible if the IRS concludes that the taxpayer’s SFCP
submission omits important information. Because taxpayers have a
strong incentive to use the SFCP—as opposed to other methods
to regain compliance—the IRS routinely polices the
submissions that are made under the program. The federal district
court decision in Jones v. U.S., No. CV-19-04950-JVS (C.D.
Cal. May 11, 2020), offers a glimpse into what can potentially go
wrong if a SFCP submission is flagged by the IRS for additional


As discussed infra, the Jones failed to properly report
all of their interests in foreign accounts. Under the Bank Secrecy Act
(“BSA“), U.S. persons are required
to file FBARs to report their foreign account balances
if the cumulative balances of the foreign accounts exceed $10,000
at any point in the tax year.

Taxpayers who miss the deadline or report incorrect information
on an FBAR are subject to civil penalties, which vary depending on
whether the non-filing/improper filing is due to willful conduct or
non-willful conduct. As the court in Jones explains, the
distinction between willful and non-willful conduct is often an
ambiguous one.

If a taxpayer’s conduct is found willful, the BSA permits
the IRS to impose civil penalties as high as 50 percent of the
foreign account balances at the time of the
violation—i.e., when the FBAR was due. By statute,
the IRS may also impose the 50 percent willful penalty for each tax
year, subject only to the statute of limitations on assessment of
the FBAR penalty.

If a taxpayer’s conduct is found non-willful, the penalty is
a reduced $10,000 per violation (adjusted for inflation). There is
currently a split in the federal courts on the proper meaning of
the term “violation” for non-willful penalties. Some
federal courts have held that it means $10,000 per untimely
disclosed foreign bank account; other federal courts have held the
term means per-year or per-FBAR form. In Bittner, the Supreme Court granted
certiorari to resolve the split—accordingly, the issue should
be decided with more clarity next term.

Jones v. U.S.


Mr. and Mrs. Jones had been husband and wife for some time. Mr.
Jones was born in New Zealand; Mrs. Jones was born in Canada.
Neither had a college education, nor significant experience in U.S.
tax or accounting matters.

The Jones became U.S. citizens in 1969. During the years at
issue (2011 and 2012), Mr. and Mrs. Jones had eleven foreign
accounts: three in Canada and eight in New Zealand. Four of the New
Zealand accounts were solely in Mr. Jones’ name; three of the
foreign accounts (two in Canada and one in New Zealand) were solely
in Mrs. Jones’ name; and the remaining four foreign accounts
were held jointly by the Jones.

Mr. and Mrs. Jones historically filed joint income tax
returns—including for 2011—until Mr. Jones passed away
on March 11, 2013. On their tax returns, the Jones failed to report
significant amounts of foreign income related to the foreign
accounts. They also indicated on Schedules B that they did not have
any interests in foreign accounts, and the Jones failed to file

The Jones used a CPA to prepare their tax returns. The CPA did
not have experience in preparing FBARs, and he did not ask the
Jones whether they had foreign accounts.

After Mr. Jones passed away, Mrs. Jones was named his executor.
Only after Mr. Jones died did Mrs. Jones learn of his separate
accounts in New Zealand. To assist with the administration of the
estate, Mrs. Jones hired attorneys. Based on their legal advice,
Mrs. Jones filed a timely FBAR for 2012, reporting the foreign
accounts. Moreover, she filed amended tax returns for 2011 and
2012, reporting all unreported foreign income from the

Approximately two years later, Mrs. Jones also filed an SFCP
submission with the IRS, which included: (1) amended joint income
tax returns for 2011 and 2012 that she had previously filed and an
original income tax return for 2013; (2) FBARs for 2008 through
2013; (3) a non-willful narrative, executed under penalties of
perjury; and (4) payment of the miscellaneous Title 26 penalty in
the amount of $156,795.26. Mrs. Jones computed the Title 26 penalty
based solely on her individual accounts and her joint accounts with
Mr. Jones. She did not include Mr. Jones’ separate foreign
accounts in New Zealand.

The IRS selected the SFCP submission for examination. According
to the Jones court, the reason for the examination was
that “Mrs. Jones’ Streamlined submission did not list, and
did not pay a 5% penalty on Mr. Jones’ foreign accounts.”
After the examination concluded, the IRS sought to impose willful
FBAR penalties against both Mr. and Mrs.
in the amount of $1.52 million. Mrs. Jones, in
her individual capacity and as executor of Mr. Jones’ estate,
filed a lawsuit against the United States to have the willful FBAR
penalty removed or reduced. After discovery concluded, the parties
all moved for summary judgment on their claims.


The court in Jones noted the expansive definition for
“willfulness” under the BSA. More specifically, the court

Although . . . (the BSA) does not define the term willfulness,
courts adjudicating civil tax matters have held that an individual
is willful where he/she exhibits a reckless disregard of a
statutory duty. Whether a person has willfully failed to comply
with a tax reporting requirement is a question of fact.
Recklessness is an objective standard that looks to whether conduct
bears of an unjustifiably high risk of harm that is either known or
so obvious that it should be known. Improper motive or
bad purpose is not required to establish willfulness in the civil
. Where a taxpayer makes a conscious effort to
avoid learning about reporting requirements, evidence of such
willful blindness is a sufficient basis to establish willfulness.
Willfulness may also be proven through inference from conduct meant
to conceal or mislead sources of income or other financial

Given this broad definition for willfulness, the court in
Jones refused to grant either party’s motion for
summary judgment. Indeed, the federal court reasoned that there
were facts for and against a finding of willfulness. Facts favoring
the United States included: (1) the Jones filed Schedules B and
checked the boxes “no” regarding whether they had
interests in foreign accounts; and (2) the Jones received
statements from their foreign banks but never provided those
statements to their CPA for tax preparation. With respect to the
Jones, the court noted the following favorable facts: (1) the Jones
relied on a CPA who was unaware of the FBAR reporting requirements;
and (2) upon learning of the missed FBAR filing, Mrs. Jones
promptly filed amended tax returns and voluntarily submitted the
tardy FBARs through the SFCP.

Accordingly, the court reasoned that a trial was necessary for a
final determination as to whether Mr. and Mrs. Jones were liable
for willful FBAR penalties.


The Jones decision shows that the IRS actively polices
submissions made under the SFCP and denies the benefits of the
program to those who fail to qualify. Taxpayers who wish to make an
SFCP submission should be familiar with the requirements of the
program and also the concept of willfulness versus non-willfulness.
Taxpayers who make an SFCP submission without making these critical
determinations run the risk of increased civil penalties and an
expensive IRS audit after the submission has been made.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.